Agrium Beats Estimates in 2Q

Agrium Inc.’s ( AGU - Analyst Report ) second-quarter 2012 adjusted (excluding one-time items other than stock-based compensation expenses) earnings of $5.43 per share exceeded the Zacks Consensus Estimate of $5.36. On a reported basis, earnings came in at $5.44 per share, up 19.8% from $4.54 reported in the year-ago quarter.

Revenues amounted to $6,834 million in the quarter, up 10.3% year over year, and also above the Zacks Consensus Estimate of $6,549 million. Revenues were driven by higher agricultural sales.

Segmental Performance

Retail: The segment posted sales of $5.2 billion in the quarter, reflecting a year-over-year jump of 12%. Strong demand across all crop input products and services led to the increase in sales. Gross profit jumped 10.8% year over year to $1.1 billion. The segment’s earnings from continuing operations before finance costs, income taxes, depreciation and amortization (EBITDA) were a record $605 million, up 14.4% year over year.

Wholesale: The wholesale segment posted net sales of $1.7 billion in the quarter, marginally above the year-ago quarter. Gross profit was the highest in company’s history at $673 million, an increase of 9% from the year-ago quarter. EBITDA increased 11.2% to $686 million. The growth was driven by higher realized selling prices and lower input costs of the nitrogen business.

Advanced Technologies: Advanced Technologies’ gross profit was $36 million, down 2.7% from $37 million in the prior-year quarter. Unplanned outages at the Carseland nitrogen facility resulted in lower sales volumes of the Environmentally Smart Nitrogen (ESN). These also offset the strong earnings posted by the Micronutrients and Evergro acquisitions and increased sales in the Direct Solutions segment in the U.S. EBITDA jumped 11.1% year over year to $20 million.

Acquisition

Agrium, in March 2012, entered into an agreement with Viterra Inc. to acquire the majority of its Agri-products business. The purchase price is expected to be roughly C$1.65 billion. Agrium will acquire the assets from Glencore International plc upon completion of the latter’s acquisition of Viterra.

On August 2, 2012, Agrium and Glencore announced that CF Industries Holdings Inc. ( CF - Analyst Report ) , which owns a 66% interest in the Medicine Hat nitrogen facility, will buy Viterra's 34% interest in the facility for C$915-million. As such, Agrium will not acquire an interest in the Medicine Hat facility. However, the company will continue to benefit from Viterra's operating cash flow on the facility till the closure of the transaction.

Financial Position

Cash provided by operating activities was $1,120 million in the second quarter compared with $76 million at the end of the year-ago quarter. Capital expenditure stood at $514 million versus $246 million in the prior-year quarter. Cash and cash equivalent as of June 30, 2012, was $1,946 million compared with $1,346 million as of December 31, 2011.

Outlook

The company expects crop yields to be lower in 2012 owing to the severe droughts in the country, resulting in high grain prices. High crop prices and tight grain inventories are expected to create huge demand for nutrients in the years ahead.

We currently have a long-term Outperform recommendation on Agrium. The company, which competes with CF Industries Holdings Inc. and Potash Corp. of Saskatchewan Inc. ( POT - Analyst Report ) , maintains a Zacks #1 Rank, implying a short-term (1 to 3 months) Strong Buy rating